Europe is leading the charge on climate change, while polluters from China and Trump's framing of climate change as a 'hoax' are holding the world back so the story goes. But could European claims of climate virtuousness ring hollow? Angus McNelly of King's College London argues Europe and North America's efforts to tackle climate change are actually harmful on the ground. By necessitating climate investments are profitable, we're tearing up ecosystems to make carbon offset projects that harm locals and damage ecosystems, and all the while tying up developing economies to this market led approach and forcing their populations to come to us to solve their problems.

In the West, Europe and North America are assumed to leading the battle against climate change, hindered by polluting Chinese industry or Middle Eastern oil producers. While there may be some truth to this, the West’s answer to the climate crisis is underpinned by blind faith in markets and exploitation of the environment elsewhere. By relying upon private finance to solve our crisis, we’re surrendering the planet to market forces. What’s worse, we’re forcing the rest of the world to do likewise. As one Kenyan official famously quipped: “Every time the Chinese visit, we get a hospital. Every time the British come we get a lecture.” Arguably, now more than ever that lecture rings hollow.

We are already in the midst of the climate crisis, although the worst is yet to come. We need to adapt to changes in our climate already underway and to pay for climate disasters such as the California wildfires or the floods in Valencia. We also need to mitigate for future changes to our climate by transforming land use and agricultural systems and transitioning away from fossil fuels towards green energy. These are no small tasks, and they need to be done fast.

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Arguably, who pays has become the central concern in the fight against climate change. "Almost everybody agrees that hugely scaled-up and cheap financing are a necessary condition for achieving the needed clean energy revolution in emerging and developing countries", argues the Chief Economist Correspondent at the Financial Times (FT), Martin Wolf. The acrimonious end to the latest round of climate negotiations at COP29 last November, which hinged on the US$300 million finance deal, is symptomatic of this.

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The American Petroleum Institute, was delighted, declaring “This is a new day for American energy.”

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More often than not, the problem of finance is framed as one of resource allocation: how to attract finance. From this perspective, finance appears as a neutral external factor and the problem of finance one of lack or absence. In other words, not enough finance to pay for the construction of new “green” infrastructure and technology is the major barrier to the green transition.

That, and the return of Donald Trump to the White House. On his first day in office, President Trump slashed environmental regulations and rolled back on his predecessor Joe Biden’s green energy programme, the Inflation Reduction Act (IRA), and pulled out of the Paris Accord (again), promising to “drill, baby, drill,” The fossil fuel lobby, the American Petroleum Institute, was delighted, declaring “This is a new day for American energy.”

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“Wall Street will dictate here,” claims a private equity insider, “and you know what? They don’t have a political agenda.

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Surprisingly, however, the response from the fossil fuel industry was muted. Trump is shouting about fossil fuels from the rooftop, but someone else is calling the shots. “Wall Street will dictate here,” claims a private equity insider, “and you know what? They don’t have a political agenda. They have a financial agenda.” All Wall Street cares about is making money. Returns on their investments through short term profits, share buybacks and dividends. And this, it seems, will decide the fate of fossil fuel resurgence and the green transition.

Finance in the Twenty-First Century

Finance is often presented as the nervous system of capitalism, sending messages about preferences, where resources are needed and what actors expect for the future. However, this metaphor presents finance as a mere conduit, rather than something with agency and the ability to shape political and economic outcomes in of itself. In the twenty-first century, I would argue, finance has serious muscle.

The reasons why this is the case can be traced back to the transformations of global capitalism over the past 50 years. In the 1970s, the US-backed Bretton Woods world order collapsed, ending the dollar gold standard and dealing the Keynesian state-led economic orthodoxy a death knell. In the wake of the oil shocks, stagflation and debt crisis that followed, macroeconomic stability became sacred. Inflation control and getting prices right became the principal concern of economists and central banks alike.

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Land rent or asset price inflation, both of which could be captured by finance and spun into new instruments, came to displace industry and manufacturing as the driver of global growth.

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The so-called neoliberal revolution unleashed market forces through re-regulating financial systems, privatising state assets and creating markets to resolve social issues. Finance capital – capital that reproduces itself through either lending and borrowing or assuming risk for a fee – benefitted nicely from these changes, freed from the shackles put in place following the 1929 Wall Street Crash.

During this period, as the painstaking work of Utsa Patnaik and Prabhat Patnaik demonstrates, land rent or asset price inflation, both of which could be captured by finance and spun into new instruments, came to displace industry and manufacturing as the driver of global growth. The growing importance of stock markets, share prices and capital markets (markets for debt) for economic growth gave finance capital increasing power over other sectors of the economy. Privatisation of utilities such as water and energy, housing, education and healthcare further increased the reach and power of finance capital – and its central sites such as Wall Streets – over our lives.

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Today, these funds manage over US$100 trillion, own a stake in most publicly listed companies in the world and have a hand in nearly every privately funded project on earth.

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This context changed again in the wake of the 2008 crisis, shifting power from investment banks to new financial players. The 2008 crisis saw a massive concentration of capital, which amassed in pools controlled by petrostates through sovereign wealth funds or asset managers such as Blackrock, State Street and Vanguard. Private pension schemes, private wealth, insurance funds, and government debt all accumulated in the hands of asset managers, who in turn invested in pretty much everything. Today, these funds manage over US$100 trillion, own a stake in most publicly listed companies in the world and have a hand in nearly every privately funded project on earth, leading Brett Christophers to speak of “our lives in [asset managers’] portfolios.”

Wall Street’s Green Transition

Here is where the green transition and Trump’s “drill, baby, drill” plan re-enter the frame. In the post-2008 world, we have witnessed an enormous misallocation of resources. And so, working within the confines of capitalism, the only way to successfully pursue energy programmes and infrastructure construction – all large-scale, capital-intensive projects – is to attract investment from these huge pools of capital and encourage them to “crowd in.”

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Projects have to be “bankable,” which means that goods and services have to be transformed into commodities that can command a price on the market and a return for investors.

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This is how Wall Street can “dictate” the terms and conditions of the energy transition. For projects to work, finance capital wants limited, known risks, guaranteed returns and regulatory certainty. Whilst on the surface this appears to be a financial agenda, this is an extremely political agenda too. It requires governments to assume risks by guaranteeing future revenues and implementing user fees (sometime before projects are even constructed.) This pushes liabilities onto government balance sheets and forces citizens, rather than investors, to pay when markets take a turn for the worse or projects go wrong. Projects have to be “bankable,” which means that goods and services have to be transformed into commodities that can command a price on the market and a return for investors. And there has to be certainty that regulatory regimes are going to be beneficial for capital, shielding investors from claims on profits from the state and their citizens.

This produces a hegemonic green transition that activists in Latin America label the “corporate energy transition.” Transforming nature into an asset class and unleashing marketised mechanisms in the name of tackling climate change has provoked huge land grabs in the Amazon rainforest as private landowners try to take advantage of carbon offset markets. REDD (Reducing emissions from deforestation and forest degradation) projects designed to harness forests’ carbon sequestering power have led to perverse outcomes, with Indigenous peoples in Pará, Brazil, recently dispossessed of their land in the name of palm oil project in the name of tackling climate change.

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Worst, still, the very climate disasters these initiatives are trying to prevent can release all this captured carbon back into the atmosphere. In California, USA, wildfires have destroyed almost all the carbon credits designed to offset tree loss over the next 100 years. Carbon markets may be good for finance and corporations, but in practice they are downright dangerous, enabling further emissions and financial gain, not mitigating global carbon emissions.

In short, the financial agenda of Wall Street is underpinned by a political agenda of free markets. The profit motive is placed firmly in the driving seat. This pushes other political motives – the economic nationalism of Trump or the environmental urgency behind the green transition – into the background. The result is questions around the economy become depoliticised, with movements of financial markets severely restricting the actions of states and government leaders. Recent British Prime Ministers Liz Truss and Keir Starmer have both learnt the power finance capital has to veto political programmes through gilt markets (which set the price for government borrowing).

In the Global South, finance’s power is even more extreme, with the threat of capital flight, movements of currency markets and access to credit markets (upon which all governments depend) all discipline governments and enforce the agenda, aided by International Financial Institutions (IFIs) such as the World Bank and International Monetary Fund (IMF).

A Glimmer of Hope

There is, however, an opportunity to start to do things differently. The President of the World Bank Ajay Banga recently told the FT that private finance “is not a panacea for everything. This idea that the trillions are waiting in the private sector to rush into the development of a poor emerging market country — that’s not what I’m telling you.” The Wall Street Consensus is failing on its own terms. Governments and the World Bank are waking up to the fact that the political agenda of Wall Street is not going to solve the climate crisis. After all, total climate finance was around $1.5trn and yet we still surpassed 1.5 degrees of warming last year. Aggregate emissions continue to increase year on year. This leaves the door ajar for alternative transitions.

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Here the central question is not finance but how to empower people to take control over energy production and use.

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The flip side of the “corporate energy transition” is the “popular energy transition.” Emerging from social movements in Latin America who are fighting the ecological and environmental fallout of transition mineral mining, the “popular energy transition” is envisioned as a democratic, bottom-up transition that aims to centre people’s needs. Here the central question is not finance but how to empower people to take control over energy production and use.

Examples of this include solar-powered microgrids, as developed by indigenous communities in Bolivia, or the “pico hydro” movement, which provides small-scale power to local communities while minimising environmental impact. They also assume the form of ecofeminist collectives that have emerged from petroleum workers' strikes or struggles against extractivism across Latin America. Here, women have taken a central role in producing prefigurative politics that create territories in “re-existence” (rather mere than resistance). Colombia has been at the heart of these initiatives, with Gutavo Petro’s Vice-President Francia Márquez emerging from ecosocialist movements in Cauca. Taking a more local and collective view invites us to question why we need energy in the first place, who benefits from any transition and who loses. It puts system change on the table as the only logical and truly “just” pathway away from fossil fuels. And positions the Global South, rather than the Global North, as the possible source of alternative futures. Now is the time to take these proposals seriously.